Today, the Government Accountability Office will release a new report on fraud in Medicare and Medicaid.  By my count, it is the 159th report the GAO has issued on fraud in these programs since 1986.  According to the Associated Press:

The federal government’s systems for analyzing Medicare and Medicaid data for possible fraud are inadequate and underused, making it more difficult to detect the billions of dollars in fraudulent claims paid out each year, according to a report released Tuesday.

The Government Accountability Office report said the systems don’t even include Medicaid data. Furthermore, 639 analysts were supposed to have been trained to use the system – yet only 41 have been so far, it said.

The Centers for Medicare and Medicaid Services – which administer the taxpayer-funded health care programs for the elderly, poor and disabled – lacks plans to finish the systems projected to save $21 billion. The technology is crucial to making a dent in the $60 billion to $90 billion in fraudulent claims paid out each year.

In this article for National Review, I explain that there are reasons why those tools are, and will remain, “inadequate and underused.”

GAO’s 159th Report on Medicare/Medicaid Fraud Finds Anti-Fraud Measures ‘Inadequate’ is a post from Cato @ Liberty - Cato Institute Blog

Almost 600 pages into the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is a provision directing the Government Accountability Office to assess the feasibility of the federal government certifying organizations that provide financial literacy. The GAO released its report this week and concluded that “While a federal process for certifying financial literacy providers appears to be feasible, doing so would pose challenges.”

The challenges cited by the GAO are generally of the bureaucratic variety: What agency or agencies would be in charge? What criteria would be used? How would oversight be conducted? And most importantly, how much would it cost [taxpayers] to implement and operate a federal process for certifying financial literacy providers?

Fortunately, the GAO says that the majority of the representatives of private sector financial literacy organizations, federal agencies, and academic experts that it interviewed said that the disadvantages outweighed the advantages. Numerous concerns were cited, but one in particular stands out: Financial literacy certification may not be an appropriate role for the federal government.

Well, Hallelujah. I’ve read my share of GAO reports – almost all of which have dealt with activities that are not a proper role of the federal government – and I don’t recall that concern being mentioned.

Not only is individual financial literacy not an appropriate concern of the federal government, the federal government itself is a monument to financial illiteracy. It isn’t just that GAO report after GAO report continues to document financial mismanagement across the entire government complex. No, it’s the fact that Washington’s financial mismanagement has left us with a bloated government that’s mired in debt and crippled by massive “entitlement” programs that operate like Ponzi schemes.

The additional irony is the Dodd-Frank regulatory overhaul was passed in the wake of an economic meltdown perpetrated in large part by government failure. Alas, there might not be a lot of shame in Washington, but the hypocrisy is seemingly without limit.

The Federal Government and Financial Literacy is a post from Cato @ Liberty - Cato Institute Blog

A report from the Government Accountability Office finds that the federal government administers 47 different employment and job training programs at a cost to taxpayers of about $18 billion. The GAO excluded another 51 programs that could be considered as providing job training assistance, such as student loan subsidies.

The takeaway from the report is that there is a lot of duplication, and thus excess bureaucracy and inefficiencies. Moreover, the GAO says that “little is known about the effectiveness of most programs.” Nonetheless, Congress unflinchingly funds these programs even though the GAO has been issuing reports with similar findings since the 1990s.

Coinciding with the GAO report, Sen. Tom Coburn (R-OK) released a paper that singles out 25 particularly egregious examples of federal job training programs abusing taxpayer dollars. It’s the sort of thing that government apologists will dismiss as “anecdotal,” but when it comes to government programs, where there is smoke, there is usually fire. And if the anecdotes help undermine support for such unwarranted federal interventions, all the better.

One problem I have with Coburn’s paper is that it concludes with recommendations that amount to rearranging the deck chairs on the Titanic (e.g., consolidate programs, narrow program objectives, and better target funds). Coburn says that these programs need better “program metrics.” However, I was once responsible for program metrics as a budget official in the state of Indiana, and I can attest that politics render such endeavors a fool’s errand.

Coburn’s paper is at its best when he cites James Bovard’s observation that the government doesn’t need to be involved in job training:

As aptly considered by scholar James Bovard, the government has taken on a role more appropriately filled by the private sector. Bovard writes, “The fallacy underlying all job training programs is that the private sector lacks the incentive to train people for jobs. This is like assuming that farmers don‘t have an incentive to buy seed, or that auto manufacturers lack incentive to seek out parts suppliers. Businessmen naturally prefer that all the factors of production – including labor – be readily available. But where there is a shortage of skills and demands for services, there will be an incentive to train.”

The American Society for Training and Develop estimates that “U.S. organizations spent $125.9 billion on employee learning and development in 2009.” In addition, there are untold private options for job seekers: headhunters, counselors, recruiters, temporary work agencies, career fairs, internet resources, charities, and various civic organizations.

As Coburn correctly puts it:

The federal government could best help displaced workers by opening foreign markets to U.S. goods and services and creating an atmosphere that attracts and retains investment and productivity in the U.S. This can be accomplished in part by reducing unnecessary regulatory burdens on small businesses and employers, and ensuring stable and predictable government policies so employers can make short- and long-term investment and management decisions.

Abolish Federal Job Training Programs is a post from Cato @ Liberty - Cato Institute Blog

Today, the Government Accountability Office (GAO) confirmed what we already knew it would confirm: According to its own investigation, errors were made in producing a report highly damaging to for-profit colleges, but no one had any bad intentions and the report still stands. Well, the significantly revised report – the one much more favorable to for-profits schools that got almost no attention because GAO sneaked it out — still stands. And please, don’t try to hold the GAO accountable yourself: The GAO’s press release states that the report on its internal investigation will not be publicly released.

Now, it’s quite possible that the GAO investigation on for-profit colleges really was on the up-and-up and there truly isn’t anything to see here. But given the very basic things that the GAO, um, overlooked in its initial report — not to mention the fact that the GAO works for the public – it’s simply not acceptable to tell the public that it’s none of its beeswax what the GAO’s internal investigation found. And really, why should anyone be satisfied with a government agency declaring itself its own judge and jury?

GAO Confirms: It Did Nothing Wrong, and It’s None of Your Business is a post from Cato @ Liberty - Cato Institute Blog

Last week, Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor, and Pensions Comittee, announced that on February 17 he will continue his obssessive attack on for-profit colleges, holding yet another hearing to determine just how evil profit-seekers are.  At least, that is what will presumably be discussed — the specific subject of the hearing is yet to be identified. But the committee actually tackling, say, rampant waste throughout higher education driven by federal student aid, or just giving for-profit schools an even-handed treatment, would be too huge a turnaround to contemplate.

Despite there being no end in sight to Harkin’s seige, for-profit institutions aren’t just rolling over, and today they launched their latest counterattack. This afternoon the Coalition for Educational Success — a for-profit college advocacy group — filed a lawsuit against the Government Accountability Office. At issue: The GAO’s ”secret shopper” report on for-profit institutions that was eventually — but very stealthily — revealed by the GAO to be riddled with errors, and which could be shown to be an even bigger smear job were the GAO to allow for-profit schools to examine the evidence behind the report. 

Clearly there will be more to come on this, if for no other reason than Harkin’s show-hearings have garnered a lot of coverage in the past. Hopefully, this time potentially disturbing behavior by the GAO, as well as the huge problems federal policy has created throughout higher education — you know, the really important stories — will also get a little attention.

For-profits Fighting Back, Harkin to Flog-on is a post from Cato @ Liberty - Cato Institute Blog

It’s been a tough week for the Department of Health and Human Services. As I discussed earlier, the Government Accountability Office reported on fraud problems with the Child Care and Development Fund program. Another new report from the GAO finds fraud problems with HHS’s Head Start program.

GAO investigators attempted to register children from fictitious families in Head Start programs in six states and the District of Columbia. The GAO created 13 fictitious families that earned too much income or possessed other characteristics that would disqualify the children from participating in Head Start. The result is embarrassing:

In 8 out of 13 eligibility tests, our families were told they were eligible for the program and instructed to attend class. In all 8 of these cases, Head Start employees actively encouraged our fictitious families to misrepresent their eligibility for the program. In at least 4 cases, documents we later retrieved from these centers show that our applications were doctored to exclude income information for which we provided documentation, which would have shown the family to be over-income. Employees at seven centers knowingly disregarded part of our families’ income to help make over-income families and their children appear to actually be under-income. This would have had the effect of filling slots reserved for under-income children with over-income children. At two centers, staff indicated on application forms that one parent was unemployed, even though we provided documentation of the parents’ income. A Head Start employee at one center even assured us that no one would verify that the income information submitted was accurate.

The GAO finding is not surprising given that previous reports show that HHS does a poor job administering the program.

In 2000, the GAO found that 76 percent of Head Start grantees reviewed were not in compliance with financial management standards. In a subsequent review, more than half remained out of compliance. In 2005, the GAO reported that HHS still couldn’t adequately identify financial management weaknesses of Head Start grantees. In 2008, the GAO reported that HHS still had not undertaken a comprehensive assessment of Head Start’s risks, and said that it had made “little progress” in ensuring that the data it collects from grantees are reliable.

But as a Cato essay on Head Start explains, the program’s biggest problem is that it isn’t effective in helping children from low-income families succeed later in life:

In 2010, HHS released a long-anticipated study of Head Start’s effectiveness, which is the most rigorous analysis to date. The program is supposed to give disadvantaged children a “head start” in life. However, the study found almost no advantages to children in kindergarten and grade one from having gone through Head Start, compared to children who had not.

Of the 112 measurements in the new HHS study—which covered areas such as academics, socio-emotional development, and health—only a handful showed any statistically significant benefit to participants of Head Start. In addition, most measured benefits disappeared once more rigorous statistical methods were applied. In other words, there was virtually no benefit to children of having attended Head Start.

After 45 years and $166 billion in spending, it’s apparent that this Great Society relic isn’t the best way to help disadvantaged children.

Opponents of federal welfare programs are often accused of being unconcerned about the needs of the poor. However, the burden of proof should be on the advocates who claim that federal bureaucracies and concomitant subsidies are the best option for assisting the less fortunate. Head Start, and other smoldering embers from the Great Society’s “War on Poverty,” continues to show otherwise.

Head Start Fraud is a post from Cato @ Liberty - Cato Institute Blog

The Department of Health and Human Services’ Child Care and Development Fund is a state aid program that subsidizes child care expenses for low-income working families with children. The federal government largely leaves it to the states to provide oversight for the CCDF program, which HHS estimates loses more than 10 percent of its funding in improper payments.

A new report from the Government Accountability Office shows widespread fraud by CCDF recipients in the sampling of states that it investigated:

Our proactive testing revealed that CCDF programs in the 5 states we tested were vulnerable to fraud because states did not adequately verify the information of children, parents, and providers and lacked adequate controls to prevent fraudulent billing. In 7 of 10 cases in four states, our fictitious parents and children were admitted into the CCDF program because states did not verify the personal and employment information provided by the applicants. Three of those states paid $11,702 in childcare subsidies to our fraudulent providers, and two states allowed the providers to over bill for services beyond their approved limit. Only one state successfully prevented our fictitious applicants from being admitted into the program, but officials from that state told us they perform only limited background checks on providers and cannot immediately detect over billing.

The GAO’s findings can be summarized as follows:

• States lack effective controls to verify parent and child information, such as a parent’s income eligibility.
• States do a poor job of checking the backgrounds of providers, which mean subsidized child care could be being provided by sex offenders.
• States have weak controls to prevent fraudulent billing. Nonetheless, the GAO found numerous instances of delays in processing applications.

None of these findings are particularly surprising considering that government bureaucracies have little incentive to make sure funds are appropriately spent. The reason is simple: bureaucracies play with other people’s money and aren’t subject to competitive market forces.

When the government engages in “charitable” activities, it does so with money that it involuntarily obtains from taxpayers. In contrast, those who voluntarily donate to charities have an incentive to make sure their donations are properly used. If a charity does a poor job, donors have the freedom to turn to a different charity.

See this essay for more on the problems with subsidy programs administered by HHS, including the CCDF.

Child Care Subsidies Fraud is a post from Cato @ Liberty - Cato Institute Blog

As the fall elections approach, two factions within the congressional GOP have emerged. The first faction, which generally controls the Republican leadership, is short-term oriented and just wants to return the GOP to power in Congress. Riding the wave of voter discontent over the government’s finances is a means to an end — the end being power.

The second, and considerably smaller faction, is more ideas driven and views the upcoming election as an opportunity to push for substantive governmental reforms. Whereas the “power first faction” offers platitudes about smaller government, the “ideas first faction” isn’t afraid to offer relatively bold suggestions for confronting the federal government’s unsustainable spending.

The ideas first faction is willing to publicly recognize that runaway entitlement spending must be reigned in and offer solutions to address the problem. Representatives Ron Paul, Michelle Bachmann, and Paul Ryan, for example, aren’t shying away from advocating a phase-out of the current Social Security system, which is headed for bankruptcy. In contrast, the power first faction lambasted Democrats for wanting to “cut Medicare” during the recent legislative battle over Obamacare.

In Ryan’s case, he has given the power first faction heartburn by pushing his “Roadmap for America’s Future,” which confronts the entitlement crisis head-on. Although Ryan’s Roadmap is not the ideal from a limited government standpoint, it’s a credible offering with ideas worth discussing. Even though the Ryan plan has received some favorable notice by the mainstream media, the power first faction would probably prefer Paul and his Roadmap went away.

From the Washington Post:

Of the 178 Republicans in the House, 13 have signed on with Ryan as co-sponsors.

Ryan’s proposals have created a bind for GOP leaders, who spent much of last year attacking the Democrats’ health-care legislation for its measures to trim Medicare costs. House Minority Leader John A. Boehner (R-Ohio) has alternately praised Ryan and emphasized that his ideas are not those of the party.

Ryan has not helped to make it easy for his leaders. He is a loyal Republican, but he is also perhaps the GOP’s leading intellectual in Congress and occasionally seems to forget that he is a politician himself.

At a recent appearance touting the Roadmap at the left-leaning Brookings Institution, someone asked Ryan why more conservatives weren’t behind his budget plan. “They’re talking to their pollsters,” Ryan answered, “and their pollsters are saying, ‘Stay away from this. We’re going to win an election.’”

His remarks illustrate the tension among Republicans over their fall agenda. Some strategists say the GOP should focus on attacking the Democrats; others want the party to offer a detailed governing plan.

Ryan’s ideas can be contrasted with those of the House Republican Conference Committee, which is a key power first organization. The HRCC just released a platitude-filled August recess packet for Republican House members to recite in talking to their constituents. Entitled “Treading Boldly,” the cover prominently features Teddy Roosevelt, which should immediately send chills down the spines of anyone believing in limited government.

The document is not “bold.” Take for example the five proposals to “Reduce the Size of Government”:

• Freeze Congress’ Budget. This has populist appeal but does virtually nothing to reduce the size of government. The legislative branch will spend approximately $5.4 billion this year. That’s less than the federal government spends in a day.

• Stop the Expansion of the Federal Bureaucracy. The document notes that federal civilian employment has risen under Obama. We’ve criticized this expansion and advocated freezing or cutting employee compensation to generate some savings, but merely stopping the bureaucracy’s expansion is not bold.

• Eliminate Unnecessary or Duplicative Programs. This proposal is so vacuous that even House Speaker Nancy Pelosi supports it. If the GOP isn’t willing to name a dozen or so substantial “unnecessary” programs to eliminate, then this promise can’t be taken seriously.

• Hold Weekly Votes to Cut Spending. Fine idea. But the House Republican leadership’s new YouCut initiative hasn’t offered up many substantive cuts. For example, offering up Mohair subsidies for cutting would only save $1 million. The GOP’s weekly vote to cut would be more credible if big money farm subsidies, like those for corn or cotton, were put on the table.

• Audit the Government for Ways to Save. Yawn. Isn’t that what the $600 million Government Accountability Office does? The document says “Congress should initiate a review of every federal program and provide strict oversight to uncover and eliminate waste and duplication.” Nothing says “not serious” like calling for the federal government to eliminate “waste.” Waste comes part and parcel with a nearly $4 trillion government that can spend other’s people money on pretty much anything it wants to.

To be fair, there are sound proposals contained in the document such as privatizing Fannie Mae and Freddie Mac. But on the issue of entitlements, the HRCC punts:

The current budget process focuses only on about 40 percent of the budget and just the near-term – usually the next twelve months. We know that we have significant medium and long-term fiscal challenges fueled by the demographic changes in our country. The Government Accountability Office estimates that we have $76 trillion in unfunded liabilities. Rather than simply ignoring these challenges, Congress should reform its budget process to ensure that Congress begins making the decisions that are necessary to update our entitlement programs to secure them for today’s seniors and save them for future generations.

Had the Republicans not swept into office in 1994 on a promise to reduce government only to make it bigger, the power first faction’s “trust us” argument might be more credible. However, given that it already views the GOP’s ideas first faction as skunks at the party, voters who are expecting a new Republican congressional majority to downsize government might not want to hold their breath.

The Two GOPs is a post from Cato @ Liberty - Cato Institute Blog

Amtrak has announced that it will spend $300 million on 130 new rail cars, including sleeper and dining cars, for its long-distance trains. The government company’s announcement came with the obligatory statement that the purchase will create 575 jobs. That’s more than $500,000 per job.

As a Cato essay on Amtrak discusses, all of Amtrak’s long-distance routes are money-losers. For example, the Sunset Limited, which runs from New Orleans to Los Angeles, lost $462 per passenger in 2008. According to the Government Accountability Office, long-distance routes account for 15 percent of riders but 80 percent of financial losses.

Amenities like sleeping and dining services contribute to the red ink:

The demographic being served by these long-term routes does not demonstrate a strong need for taxpayer subsidies. Eighty percent of long-distance train riders use it for recreational and leisure trips, and riders tend to be retirees. Premium services like sleeper and dining cars contribute to operating losses for long-distance trains. These amenities are heavily subsidized, which means taxpayers—and not the pleasure-seeking retirees—are incurring the burden.

To maintain its unprofitable routes, Amtrak is dependent on federal subsidies, which are usually about $1.5 billion a year (Amtrak also recently received $1.3 billion in stimulus money). Amtrak has asked for $2.5 for the upcoming fiscal year, and the Senate Appropriations Committee has proposed a 25 percent increase.

Amtrak’s press release brags: “Last fiscal year (FY 2009), the railroad carried 27.2 million passengers, making it the second-best year in the company’s history.” That sounds good until you realize that Amtrak accounts for only 0.1 percent of the nation’s passenger travel. Moreover, Amtrak projected in 1976 that its ridership would grow from 17.3 million in 1975 to 32.9 million by 1980.

With the nation’s debt spiraling out of control, taxpayers can no longer afford to subsidize Congress’s toy train. If intercity passenger rail makes economic sense, it could be profitably supported by its ridership and run as a private company. If not, then it makes no more sense for taxpayers to keep Amtrak operating than it would be for the federal government to subsidize stagecoaches.

Amtrak’s New Rail Cars is a post from Cato @ Liberty - Cato Institute Blog

Via the Identity Project’s “Papers, Please” web site, and despite my colleague David Rittgers’ excellent post from yesterday, I note last week’s utterly damning Government Accountability Office report on the SPOT program. “SPOT” stands for “Screening Passengers by Observation Techniques.” In the program “BDO’s,” or “Behavior Detection Officers,” observe travelers in airports, pulling them out of line if a secret list of behaviors signal that they’re a likely threat.

The thing is:

TSA deployed SPOT nationwide before first determining whether there was a scientifically valid basis for using behavior and appearance indicators as a means for reliably identifying passengers as potential threats in airports. … TSA state[s] that no other large-scale U.S. or international screening program incorporating behavior- and appearance-based indicators has ever been rigorously scientifically validated. While TSA deployed SPOT on the basis of some risk-related factors, such as threat information and airport passenger volume, it did not use a comprehensive risk assessment to guide its strategy of selectively deploying SPOT to 161 of the nation’s 457 TSA-regulated airports. TSA also expanded the SPOT program over the last 3 years without the benefit of a cost-benefit analysis of SPOT.

The Israeli airline El Al uses behavior detection, counters the TSA—as did DHS Secretary Janet Napolitano when I asked her about this report at a meeting of the DHS Privacy Committee Tuesday.

The GAO report notes that El Al’s processes, which are different from the TSA’s, have not been scientifically validated. As of 2008, El Al had 34 aircraft, operating out of one hub airport, Ben-Gurion International. There are 457 TSA-regulated airports in the United States. In 2008, El Al had passenger boardings of about 3.6 million; one U.S. airline, Southwest, flew about 102 million passengers that year.

From late May 2004 through August 2008, BDOs referred 152,000 travelers to secondary inspection. Of those, TSA agents referred 14,000 people to law enforcement, which resulted in approximately 1,100 arrests. TSA officials did not identify any direct links to terrorism or any threat to aviation in these cases. GAO noted its inability to determine if this is a better arrest rate than would occur under random screenings.

GAO also determined that at least 16 individuals allegedly involved in terrorism plots have moved at least 23 different times through eight airports where the SPOT program has been implemented. SPOT caught none of them.

The Government Accountability Office is a master of understatement, leaving conclusions for readers to draw. Mine is that the $1.2 billion in planned spending on the program over the next five years will be a wasteful producer of civil liberties violations.

GAO’s Damning Report on ‘SPOT’ is a post from Cato @ Liberty - Cato Institute Blog

Jim O’Brien, a vice-president at Time Inc. and chairman of the Mailers Council, recently guest-blogged on the U.S. Postal Service’s inspector general’s web site on the subject of “automation refugees.”

O’Brien explains the origination of the term:

Back in 1990, Halstein Stralberg coined the term “automation refugees” to describe Postal Service mail processing employees who were assigned to manual operations when automation eliminated the work they had been doing. Since the Postal Service couldn’t lay off these employees, they had to be given something to do, and manual processing seemed to have an inexhaustible capacity to absorb employees by the simple expedient of reducing its productivity. The result was a sharp decline in mail processing productivity and a sharp increase in mail processing costs for Periodicals class. Periodicals class cost coverage has declined steadily since that time.

O’Brien then tells of visiting seventeen mail processing facilities as part of a Joint Mail Processing Task Force in 1998. During those visits he noted that the periodical sorting machines always happened to be down even though the machines were supposed to be operating seventeen hours a day. Although the machines weren’t working, manual operations were always up and running.

A decade later, O’Brien points out that the situation apparently hasn’t changed:

More Periodicals mail is manually processed than ever, and manual productivity continues to decline. Periodicals Class now only covers 75% of its costs. How can this dismal pattern of declining productivity and rising costs continue more than two decades after it was first identified, especially when the Postal Service has invested millions of dollars in flats automation equipment?

O’Brien probably answered this question when he noted that the USPS couldn’t lay off these automation refugees back in 1990.

As I’ve discussed before, the USPS has a major union problem. A new Government Accountability Office report cites as a problem the fact that most postal employees are protected by “no-layoff” provisions. The USPS must also let go lower-cost part-time and temporary employees before it can lay off a full-time worker not covered by a no-layoff provision.

Unfortunately, recent comments from members of the House Oversight and Government Reform Committee showed an unjustified concern for how potential reforms would affect postal employees. Labor isn’t the only problem facing the USPS, but Congress needs to understand that the postal service’s expensive unionized workforce is a crippling burden.

The USPS’s ‘Automation Refugees’ is a post from Cato @ Liberty - Cato Institute Blog

Comments from members of the House Oversight and Government Reform Committee at a recent hearing on the U.S. Postal Service’s woes indicate they don’t appreciate the USPS’s union problem. Postmaster General John Potter went before the committee to make his case for restructuring the postal operation, including greater labor flexibility.

From GovExec.com:

“You have to find people meaningful work, or no matter how compassionate you are, you’re not doing them any favors,” said Rep. Darrell Issa, R-Calif., the ranking member of the House Oversight and Government Reform Committee, criticizing holding rooms where underemployed postal workers wait until there are tasks for them to perform. “How many billions of dollars would have been saved if you’d aggressively right-sized the force before you came to us and said you want to go from six days [of mail delivery] to five?”

Congressman Issa should be informed that it is union rules that prevent postal management from laying off underemployed postal workers and having to put them in holding rooms.

Issa told Potter during his opening statement that the Postal Service has “more or less a third more people than you need,” but he said it “is not really acceptable” to convert full-time jobs to part-time positions, unless applicants are looking specifically for part-time work or part-time positions that lead to full-time work. Rep. Diane Watson, D-Calif., said she was concerned that part-time workers might not be treated fairly or could be excluded from collective bargaining agreements.

Lawmakers insisted repeatedly that even as the Postal Service confronts harsh financial realities, the agency must take into consideration the jobs of postal workers. “I’m hopeful this committee will find a way to deal with it that preserves the good faith that the people who serve the U.S. Postal Service have a right to expect,” said Rep. Dennis Kucinich, D-Ohio.

These members might want to read the Government Accountability Office’s latest report on the USPS, which called the mail monopoly’s business model “not viable.” Union labor is part of the problem. The average postal employee earns $83,000 a year in total compensation and 85 percent of its workforce is covered by collective bargaining agreements. Labor accounts for 80 percent of the USPS’s cost structure.

The GAO cites the following as reasons why USPS labor costs are so high:

• The USPS covers a higher proportion of employee premiums for health care and life insurance than most other federal agencies, which is impressive because it’s hard to be more generous than federal agencies.

• USPS workers participate in the federal workers’ compensation program, which generally provides larger benefits than the private sector. And instead of retiring when eligible, USPS workers can stay on the “more generous” workers’ compensation rolls.

• Collective bargaining agreements limit the amount of part-time and contract workers the USPS can use to fit its workload needs, and they limit managers from assigning work to employees outside of their crafts. The latter explains why you get stuck waiting in line at the post office while other postal employees seemingly oblivious to customers’ needs go about doing less important tasks.

• Most postal employees are protected by “no-layoff” provisions, and the USPS must let go lower-cost part-time and temporary employees before it can lay off a full-time worker not covered by a no-layoff provision.

• If the collective bargaining process reaches binding arbitration, there is no statutory requirement for the USPS’s financial condition to be considered. This is like making the decision whether or not to go fishing, but not taking into consideration the fact that the boat has holes in its bottom.

The fact that Postmaster Potter has to go to Congress to plead for help to make business decisions points to a fundamental problem. Government-run businesses are necessarily hamstrung by the whims of politicians, who often only have a vague understanding of economics and business. If FedEx or UPS had to get congressional permission to manage its workforce, both would collapse. As mail volume falls, that’s where the USPS is headed unless we privatize it and deregulate postal markets.

The Postal Service’s Union Problem is a post from Cato @ Liberty - Cato Institute Blog

A recent Senate Appropriations subcommittee hearing on the U.S. Postal Service’s dire financial prospects found little enthusiasm for the USPS’s idea to eliminate Saturday mail service. Financial Services subcommittee chairman Sen. Richard Durbin (D-IL) said “serious questions need to be asked and answered,” and ranking member Sen. Susan Collins (R-ME) expressed concern that it would send the USPS into “a death spiral.”

The USPS is already in a death spiral due to changes in technology, high labor costs, and costly congressional mandates that have left it facing a projected $238 billion in losses over the next ten years. The USPS says dropping Saturday service would save the USPS $3 billion a year. However, the Postal Regulatory Commission believes the savings would be significantly smaller. Regardless, if the USPS stops Saturday service then private firms should be allowed to provide Saturday mail service.

Better yet, the USPS monopoly should be completely repealed and private firms allowed to deliver mail every day of the week. Interestingly, Postmaster General John Potter’s testimony inadvertently makes a case for privatizing the USPS.

Potter notes that when private businesses are losing money, they sell off assets, close locations, and reduce employment. He cites Sears, L.L. Bean, and Starbucks as recent examples of companies making cost cutting moves in the face of declining revenues. The Government Accountability Office’s testimony noted that the USPS has more retail outlets (36,500) than McDonalds, Starbucks, and Walgreens combined. Yet, its post offices average 600 visits per week, which is only 10 percent of Walgreen’s average weekly traffic.

In his testimony, Potter states:

If the Postal Service were provided with the flexibilities used by businesses in the marketplace to streamline their operations and reduce costs, we would become a more efficient and effective organization. Such a change would also allow us to more quickly adapt to meet the evolving needs, demands, and activities of our customers, now and in the future.

This is precisely why the USPS needs to be privatized and subjected to the demands of the market and not the whims of Congress. Members of congress always raise a fuss when the USPS targets postal outlets for closure in their districts.

Potter wants Congress to suspend a requirement that the USPS pre-fund its retiree health benefits. He argues that the trust fund for these payments has a $35 billion balance, which he says is enough to pay the health premiums for its 500,000 retirees through their lifetimes.

The more fundamental problem is the existence of this generous benefit to begin with. Potter notes that private companies aren’t subject to a pre-funding mandate. But the vast majority of private companies don’t even offer retiree health benefits. The GAO also points out that the USPS retiree benefits are generous even by government standards:

USPS pays a higher percentage of employee health benefit premiums than other federal agencies (80 percent versus 72 percent, respectively). In addition, USPS pays 100 percent of employee life insurance premiums, while other federal agencies pay about 33 percent.

Potter naturally wants more flexibility in dealing with the USPS’s excessive labor costs. The average postal employee receives $83,000 a year in total compensation. Employee pay and benefits constitute 80 percent of the USPS’s cost structure, which despite increased automation has remained the same since the 1960s. But so long as the USPS remains a government enterprise, it’s hard to imagine Congress standing up to the postal unions and giving management the labor flexibility it desires.

Finally, Potter wants the USPS to have more freedom when it comes to pricing and getting into new lines of business:

We also need the ability to expand our products and services, and ensure prices for our Market-Dominant products are based on the demand and cost of each individual product.

“Market-Dominant” is an Orwellian way of saying “Government Granted Monopoly.” Again, if the Postmaster wants mail prices to have an economic rationale, then the USPS needs to be privatized so that the market can efficiently set prices. Further, the USPS has a poor track record when it comes to expanding into services not protected by its monopoly. Plus it would be competing against the private sector on advantageous terms due to its status as a government enterprise.

What Potter wants — and needs — is something that only the private sector can provide. If the Senate hearing is any indication, Congress has no present plans to relinquish its control over the dying government monopoly. Instead, the USPS will likely continue to bleed red until policymakers run out of band-aids and are finally confronted with the choice of either privatization or direct taxpayer funding.

Postmaster Indicates Need for Privatization is a post from Cato @ Liberty - Cato Institute Blog

The Pentagon has informed Congress about another of its procurement projects that is plagued by cost overruns. In other news, the sun will rise and set today, and the pope is Catholic.

Pentagon officials told the Senate Armed Services Committee on Thursday that costs for the F-35 Joint Strike Fighter have jumped more than 50 percent since the program began in 2001. Testifying before the committee, the Government Accountability Office noted that it has reviewed the JSF effort five times and the findings haven’t been positive:

We have consistently reported on the elevated risk of poor program outcomes from the substantial overlap of development, test, and production activities and our concerns about the Government investing in large numbers of production aircraft before variant designs are proven and performance verified in testing.

In our March 2009 report, we again noted development cost increases, additional delays in manufacturing and testing schedules, and the government’s increased financial risk from plans to increase procurement in advance of testing.

The GAO reports that just since 2007 the “total estimated acquisition costs have increased $46 billion and development extended 2 ½ years.” Incredibly, the GAO says that the Pentagon still “does not have a full, comprehensive cost estimate for completing the program.”

In private industry, it would be hard to imagine that a company and its contractors would put in such a poor performance, at least as a matter of routine, which it is with weapons procurement.

Bungled weapons procurement is not just the Pentagon’s fault. Congress is often at fault as well, as a Cato essay on cost overruns points out:

Still, Congress, not the Pentagon, deserves the main blame for cost overruns since it holds the purse strings. Rather than looking out for taxpayer interests, most members of Congress fight attempts to reduce defense spending in their districts, including spending on weapons that the Pentagon doesn’t even want.

Defense contractors exploit this parochial self-interest of legislators, and they skillfully spread out research and production work across many states and districts to maximize congressional support. The $70 billion F/A-22 fighter program provides an example. The Washington Post noted in 2005 that the F/A-22 “is an economic engine, with 1,000 suppliers — and many jobs — in 42 states guaranteeing solid support in Congress.” In 2009, Defense Secretary Robert Gates wanted to cancel further orders of the aircraft, but hundreds of lawmakers and state governors lobbied President Obama to keep the production lines going to preserve the 95,000 related jobs.

Joint Strike Figher Cost Overruns is a post from Cato @ Liberty - Cato Institute Blog

OMB director Peter Orszag is blaming the inefficiencies of the federal government on outdated personal computers. That is hard to understand given that federal IT spending amounted to $200 million a day last year.

A new GAO report on cost overruns at the Department of Energy undercuts Orszag’s argument that the solution to government incompetence is new computers. DOE cost overruns are nothing new. As far back as 1982 the GAO was reporting that “DOE lacked sufficient guidance to provide to its contractors for developing cost estimates.” A 2007 GAO report found that eight of 12 DOE projects it examined had exceeded their initial cost estimate by almost $14 billion due to “ineffective DOE project oversight and poor contractor management.” In 2008, GAO reported that nine out of 10 environmental cleanup projects it examined had cost overruns that DOE estimated would require an additional $25 to $42 billion.

For the new report, the GAO looked at DOE’s contract management procedures and here are some of the highlights:

• “DOE has not had a policy that establishes standards for cost estimating in place for over a decade, and its guidance is outdated and incomplete, making it difficult for the department to oversee the development of high-quality cost estimates by its contractors.”

• “DOE’s only cost-estimating direction resides in its project management policy that does not indicate how cost estimates should be developed.” (This statement has to be read several times to actually be believed.)

• “DOE’s outdated cost-estimating guide assigns responsibilities to offices that no longer exist.”

• “DOE does not have appropriate internal controls in place that would allow its project managers to provide contractors a standard method for building high-quality cost estimates.”

• “DOE has drafted a new cost-estimating policy and guide but the department expects to miss its deadline for issuing them by more than a year.”

There’s nothing here that a supercomputer is going to change. Cost overruns in government programs will continue to occur for the simple reason that policymakers and administrators are playing with other people’s money. Moreover, the market forces that compel private firms to manage resources effectively or risk going out of business (unless they are in the auto or finance industries) are absent. DOE won’t be put of business for its cost overruns (although it should be); it’ll just go ask Congress for more taxpayer money.

See this Cato essay for more on cost overruns at the Department of Energy and other government agencies.

Cost Overrun Incompetence at Energy is a post from Cato @ Liberty - Cato Institute Blog

The Obama administration and its allies in Congress want the federal government to expand its role in subsidizing health care. We are told that this expansion will restrain rising health care costs. But an OMB report yesterday that the government made $98 billion in improper payments last year — $55 billion of which came from Medicare and Medicaid — ought to raise suspicions about that claim.

According to Reuters, OMB Director Peter Orszag told reporters that the embarrassing figures from Medicare and Medicaid demonstrate the need for health care reform. I would concur if “reform” meant reducing the government’s role in health care. However, he means the opposite, which raises the question of how giving more money to an already waste-prone and bureaucratic federal health system can possibly make sense for the economy.

The administration has promised to cut down on improper payments with the aid of a new executive order. According to the Associated Press:

Under the executive order, every federal agency would have to maintain a Web site that tracks improper payments, error rates and outstanding payments. If an agency doesn’t meet targets for reducing error rates for two years in a row, the agency director and responsible official will have to directly report to OMB to explain the delinquency and new actions they will take.

Somehow I doubt this will amount to much of a deterrent. The AP also said the administration plans to impose penalties on government contractors who receive improper payments. But last month it was reported that “the Department of Defense awarded nearly $30 million in stimulus contracts to six companies while they were under federal criminal investigation on suspicion of defrauding the government.”

Democrat Tom Carper, chairman of the Senate subcommittee on federal financial management, seemed to partly understand the broader meaning of the improper payment estimates:

It goes without saying that these results would be completely unacceptable in the private sector, as they should be in government, especially at a time of record deficits…Unfortunately, these numbers may still be just the tip of the iceberg since they don’t even include estimates for several major programs, including the Medicare prescription drug plan.

Yes, Senator, which is precisely why bigger government – be it stimulus, bail outs, or health care reform – is an inferior option to letting the marketplace provide for our wants and needs.

Carper is also right about the $98 billion figure being the “tip of the iceberg.” As has been noted here before:

The Government Accountability Office estimates that the two major government health programs are currently losing a combined $50 billion annually to such payments. But that estimate probably low-balls the actual losses. Harvard’s Malcolm Sparrow, a top specialist in health care fraud, estimates that 20 percent of federal health program budgets are consumed by improper payments, which would be a staggering $150 billion a year for Medicare and Medicaid.

See this essay for more on fraud and abuse in government programs.

$98 Billion in Improper Payments is a post from Cato @ Liberty - Cato Institute Blog

The U.S. Postal Service reported that it lost $3.8 billion last fiscal year and that it expects to lose $7.8 billion this year. The loss occurred despite cost-cutting measures and legislation that allowed the USPS to forgo $4 billion in required payments to pre-fund retiree health benefits.

From the Associated Press:

The post office has been struggling to cope with a decline in mail volume caused by the shift to the Internet as well as the recession that resulted in a drop in advertising and other mail. Total mail volume was 177.1 billion pieces, compared to 202.7 billion pieces in 2008, a decline of almost 13 percent. For the fiscal year that ended Sept. 30 the agency had income of $68.1 billion, $6.8 billion less than in 2008. Expenditures were down $5.9 billion to $71.8 billion.

The recession and the rise in electronic communications are generating huge financial problems for the lumbering government monopoly. Despite its efforts to reduce headcount, the USPS remains overburdened by a costly and heavily unionized workforce. As I noted previously:

The average USPS worker earns $83,000 per year in compensation, which is considerably more than the average U.S. worker. And the Government Accountability Office recently noted that ‘compensation and benefits constitute close to 80 percent of USPS’s costs — a percentage that has remained similar over the years despite major advances in technology and the automation of postal operations.’

Radical reform is needed, but I suspect that Congress will just paper over the problems for now and also continue allowing the agency to defer funding its retirement obligations:

The post office is required to make an annual contribution of about $5 billion to pay in advance for medical benefits for future retirees. Congress reduced that by $4 billion for 2009, but that change was for one year only. The agency’s independent auditor, Ernst & Young, questioned whether the post office would have enough money to make the next payment on Sept. 30, 2010, when $5.5 billion will be due.

This will just kick the can down the road. It shows that even when Congress gets something right — as it did with making the USPS pre-fund its retiree health benefits — it lacks the will to see it through when the going gets tough. Meanwhile, the Europeans continue to make progress toward deregulating their national postal services and allowing for competition. Unfortunately, it seems that Congress only looks to Europe for guidance on expanding the welfare state.

Government Mail Loses $3.8 Billion is a post from Cato @ Liberty - Cato Institute Blog

National Public Radio’s All Things Considered ran a series on “The End of Privacy” all last week that’s worth a listen. They’re primarily concerned with the ways private companies have access to vast quantities of information about individuals in the digital age—something that civil libertarians have traditionally been less concerned about than government access, for many perfectly valid reasons.  But it’s worth noting how porous that distinction can be.  A 2006 survey by the Government Accountability Office found that just four government agencies—the Justice Department, Department of Homeland Security, State Department, and Social Security Administration—spent at least $30 million annually on contracts with information resellers like Choicepoint. The vast majority of that data (91%) was used for law enforcement or counterterror purposes.  And GAO found that the resellers weren’t always in full compliance with the privacy practices that the agencies themselves are supposed to follow.

Choicepoint, coincidentally, is one of the largest clients of the consulting firm run by former Attorney General John Ashcroft. Little wonder given the amount of cash at stake: As reporter Tim Shorrock has documented, some 70 percent of our vast intelligence budget is channeled through private-sector contractors, which means that we need to understand government surveillance policy in the context of a “surveillance-industrial complex” that parallels the more familiar military-industrial complex known for bringing us $600 toilet seats and other forms of pork in camo gear. It’s worth bearing in mind that it’s not just investigatory zeal and public fear driving the expansion of the surveillance state—a lot of people are making a lot of money off it as well.

‘The End of Privacy’ and the Surveillance-Industrial Complex is a post from Cato @ Liberty - Cato Institute Blog

Just days after the health-insurance lobby released a report criticizing the Senate Finance Committee’s health care overhaul (for not expanding government enough!), Democrats and President Barack Obama lashed out at health insurers, threatening to revoke what the Government Accountability Office calls the insurers’ “very limited exemption from the federal antitrust laws.”

Democrats say they’re motivated by the need to increase competition in health insurance markets.  Right.

According to Business Week:

David Hyman, a professor of law and medicine at the University of Illinois College of Law and adjunct scholar at the Cato Institute…considers it unlikely that repeal would fundamentally change the nature of the market. While it might increase competition in some markets, he says, it could actually decrease it in others, such as those where small insurers survive because they have access to larger providers’ data. Changes to the act could therefore hurt smaller companies more than larger ones, he says.

Because the act doesn’t outlaw the existence of a dominant provider but simply prohibits collusion, says Hyman, a repeal would fall short of breaking up existing market monopolies that are blamed for artificially inflating prices. The current move against [the] McCarran-Ferguson [Act], he says, “has more to do with the politics of pushing back against the insurance industry’s opposition to health reform than it does with increasing competition in health-insurance markets.”

Combined with what The New York Times described as the Obama administration’s “ham-handed” attempt to censor insurers who communicated with seniors about the effects of the president’s health plan — the Times editorialized: “the government’s Centers for Medicare and Medicaid Services had to stretch facts to the breaking point to make a weak case that the insurers were doing anything improper” — it’s hard to argue that this is anything but Democrats threatening to use the power of the state to punish dissidents.

When Republicans were in power, dissent was the highest form of patriotism.  Now that Democrats are in power, obedience is the highest form of patriotism.

Nice Insurance Company. Shame If Anything Were to Happen to It. is a post from Cato @ Liberty - Cato Institute Blog

At Capitol News Connection, brought to you each morning by your tax dollars, they reported this morning:

With more than a trillion tax dollars tied up in the Troubled Asset Relief Program and stimulus spending, Congress is trying to figure out how to account for every penny.

Uh-huh. Congress is always on top of our federal dollars.

Coincidentally, just hours after the CNC report, the Government Accountability Office released a report warning about the lack of oversight procedures in the kitchen-sink stimulus bill. And a few days earlier the inspector general for the TARP program reported that Treasury has no real details on how TARP funds are being spent. In fact, IG Neil Barofsky told Congress that there were 20 criminal investigations into possible TARP fraud already underway.

Two months ago Barofsky and the comptroller general had warned of the likelihood of waste in huge new government programs:

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud…

Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”

One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:

[Y]ou cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.

Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”

Milton Friedman summed up the basic problem with government waste back in 2002:

When a man spends his own money to buy something for himself, he is very careful about how much he spends and how he spends it. When a man spends his own money to buy something for someone else, he is still very careful about how much he spends, but somewhat less what he spends it on. When a man spends someone else’s money to buy something for himself, he is very careful about what he buys, but doesn’t care at all how much he spends. And when a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.

Members of Congress can make all the speeches they want about their commitment to ferreting out waste and fraud, but waste and fraud are inevitable in government spending and inevitably large in such massive programs. Some people think that’s fine. At least they’re realistic. But reporters shouldn’t fall for politicians promising to spend unprecedented sums of other people’s money quickly and wisely.

Waste, Fraud, and Stimulus is a post from Cato @ Liberty - Cato Institute Blog